In Central Bank, the Court held that there is no private cause of action for aiding and abetting a Rule 10b-5 violation. 114 S. Ct. at 1455. However, as the Central Bank dissent pointed out, the Court's reasoning was more expansive, supporting an extension of the holding to actions brought by the Commission, as well as private parties, see id. at 1460 ("The majority leaves little doubt that the Exchange Act does not even permit the Commission to pursue aiders and abettors in civil enforcement actions under § 10(b) and Rule 10b-5.") (Stevens, J., dissenting) (emphasis in original) (citation omitted), and to other forms of secondary liability, such as civil conspiracy, as well as aiding and abetting, see id. at 1460 n.12 ("The Court's rationale would sweep away the decisions recognizing that a defendant may be found liable in a private action for conspiring to violate § 10(b) and Rule 10b-5.") (Stevens, J., dissenting) (emphasis in original) (collecting authorities).

The Court reasoned, in particular, that "the text of the statute controls" the scope of prohibited conduct under § 10(b). Id. at 1446; see also Central Bank, 114 S. Ct. at 1447 ("'the ascertainment of congressional intent with respect to the scope of liability created by a particular section of the Securities Act must rest primarily on the language of that section.'") (quoting Pinter v. Dahl, 486 U.S. 622, 653, 100 L. Ed. 2d 658, 108 S. Ct. 2063 (1988)). This reasoning requires that the Commission's First Claim for Relief be dismissed with prejudice, pursuant to Rule 12(b)(6). The Commission is authorized to bring an enforcement action, only in the event of an imminent or actual "violation" of the Securities Acts, see 15 U.S.C. § 77t(b),(d) (Securities Act); 15 U.S.C. § 78u(d) (Exchange Act); and the Commission has failed to identify any statutory text that makes it a (civil) violation of the Securities Acts (or of federal law more generally) to conspire to violate any one or all of the substantive provisions of the Securities Acts at issue here. Under the reasoning of Central Bank, the Commission's failure in this regard is dispositive. See In re Glenfed, Inc. Securities Litigation, 60 F.3d 591 (9th Cir. 1995) ("The Court's rationale [in Central Bank] precludes a private right of action for conspiracy liability."); In re Syntex Corp. Securities Litigation, 855 F. Supp. 1086, 1098 (N.D. Cal. 1994) ("The Court's rationale in Central Bank of Denver also forecloses [a private civil] conspiracy liability theory. Section 10(b) is silent as to conspiracy liability and there is no provision in the securities statutes authorizing a private cause of action for such conduct. Moreover, that other statutes contain express provisions imposing liability for conspiracy suggests that Congress did not intend § 10(b) to do the same.") (citing Act of Mar. 4, 1990, § 37, 35 Stat. 1096, as amended, 18 U.S.C. § 371 (criminal conspiracy statute); Packers and Stockyards Act, 1921, ch. 64 § 202, 42 Stat. 161, as amended, 7 U.S.C. § 192(f),(g) (civil conspiracy provision).

The Commission also seeks to distinguish civil conspiracy from aiding and abetting liability, on the ground that "the policy concerns expressed by the Central Bank majority [about aiding and abetting liability] are not present in the context of civil conspiracy." Opp. Mem. at 22. This argument, however, misperceives the role assigned to "policy considerations" in the Central Bank opinion. The normative concerns that the Court expressed in Central Bank about aiding and abetting liability were offered in response to the "various policy arguments" that the Commission had made to support a civil aiding and abetting cause of action. See Central Bank, 114 S. Ct. at 1453-54. The Court's first answer to these arguments was that:

Policy considerations cannot override our interpretation of the text and structure of the [Exchange] Act, except to the extent that they may help to show that adherence to the text and structure would lead to a result 'so bizarre' that Congress could not have intended it.

114 S. Ct. at 1453-54. Only after so stating did the Court describe ways in which imposing a civil action for aiding and abetting could thwart the achievement of policy goals underlying the Securities Acts. Id. at 1454; see also id. at 1448 ("The issue . . . is not whether imposing private civil liability on aiders and abettors is good policy but whether aiding and abetting is covered by the statute.").

The Third Claim For Relief summarily alleges that Romano violated the antifraud provisions, "as more fully described" in preceding paragraphs of the Complaint. See Complaint P 137; see also id. P 136 ("As a result of the conduct described above . . ."). However, the preceding paragraphs of the Complaint that are incorporated by reference into the Third Claim For Relief (PP 1-122) nowhere allege that Romano engaged in any manipulative practice with respect to USE securities.
*fn3"
Rather, they allege that "the D'Onofrio group [of which the Commission does not allege Romano was a member] engaged in manipulative devices . . . referred to as 'wash sales' and 'matched orders.'" Complaint P 82 (emphasis added). As a result, the Third Claim For Relief is dismissed without prejudice, as against Romano, for failure to state a claim upon which relief can be granted, see In re American Express Shareholder Litigation, 39 F.3d 395, 400 n.3 (2d Cir. 1994) ("Courts do not accept conclusory allegations on the legal effect of the events plaintiff has set out if these allegations do not reasonably follow from his description of what happened.") (citations and internal quotation marks omitted), and for failure to plead fraud with particularity.

The Commission's Sixth Claim For Relief (Complaint PP 1-122, 146-50), adequately alleges, for Rule 12(b)(6) purposes, that Romano violated Section 10(b) of the Exchange Act and Rule 10b-6 thereunder, by bidding for or purchasing USE stock, or inducing other persons to purchase USE stock, or both, before his participation in the distribution of USE stock to the public was completed. Compare 17 C.F.R. 240.10b-6 with Complaint P 147. However, the Sixth Claim For Relief does not allege this violation with the specificity required by Rule 9(b). Rather, the Sixth Claim For Relief merely lumps Romano together with other defendants as having violated Rule 10b-6, providing no detail as to such matters as Romano's participation in the distribution or the instances on which he bid for, purchased, or induced others to purchase USE stock while a participant. The Sixth Claim For Relief is therefore dismissed without prejudice, as against Romano, for failure to plead fraud with particularity.

CONCLUSION

The First Claim For Relief is HEREBY DISMISSED WITH PREJUDICE for failure to state a claim upon which relief may be granted. The Third Claim For Relief is HEREBY DISMISSED WITHOUT PREJUDICE for failure to state a claim upon which relief may be granted and for failure to plead fraud with particularity. The Sixth Claim For Relief is HEREBY DISMISSED WITHOUT PREJUDICE for failure to plead fraud with particularity. Romano's motion to dismiss the Fifth Claim For Relief is HEREBY DENIED.

The Commission may file an amended complaint within 60 days from the date of this Order.

SO ORDERED

New York, New York

August 24, 1995

Peter K. Leisure

U.S.D.J.

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